Employer of Record Iceland
Hire staff and expand your business in Iceland with our fully-managed EOR Service
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Unrivalled Employer of Record Service in Iceland designed to expand your business seamlessly
Agility EOR delivers services for business’s looking for an Employer of Record in Iceland. We help clients hire new employees or transfer existing employees into a fully-managed EOR service.
Employer of Record in Iceland
A Brief Guide to Iceland
Iceland is known for its high standard of living, excellent healthcare, and advanced education system. The country is famous for its stunning natural beauty, including glaciers, geysers, and hot springs. Iceland is a parliamentary republic and is a member of international organizations such as the European Free Trade Association, the Schengen Area, and the United Nations.
North Atlantic Ocean
103,000 square kilometers
Icelandic Krona (ISK)
Reykjavik, Akureyri, Kópavogur, Hafnarfjörður
$27.1 billion USD
Tourism, renewable energy, fisheries, agriculture
Business Culture in Iceland
In Iceland, the business culture values professionalism, collaboration, and informality. Being punctual, dressing smartly, and communicating openly are appreciated. Decision-making is often collaborative, and personal relationships and trust are important in business dealings. Icelanders respect expertise and thorough preparation for meetings.
Adhering to proper business etiquette, such as exchanging business cards and addressing individuals by their first names, is customary. Success in Icelandic business culture requires adaptability, respect, and a focus on relationship-building.
Payroll and Taxes
Payroll and Taxes in Iceland
Collective agreements provide for the payment by employers of a fixed Christmas bonus payable in December and a Holiday bonus payable from 1 May to 15 August.
In Iceland, income tax rates are progressive, with higher income levels subject to higher tax rates.
Gross Annual Income
Tax Rate (%)
0 Up to ISK 349,018
349,019 Up to ISK 979,847
Over ISK 979,847
Employers in Iceland are also responsible for various employer costs, which may include:
Employee Sickness Fund
Employee Training Fund
Trade Union – Summer House Benefits
Pension and Healthcare
In Iceland, there is a mandatory state pension system, funded by social security contributions from both employees and employers. The contribution rates, as a percentage of an employee’s gross salary, are as follows:
- Employees: 4% for pension and disability insurance
- Employers: 11.5% for pension and disability insurance
Healthcare in Iceland
Iceland’s public healthcare system, known as the Icelandic Health Insurance (IHI), offers comprehensive medical services to its residents. This includes primary care, specialist services, hospital care, prescription medications, dental care, maternity care, and mental health services. The IHI aims to ensure that all residents have equal access to essential healthcare services, regardless of their financial status or geographical location.
Both employees and employers contribute to the system through a percentage of their salaries. This mandatory contribution is collected by the Icelandic tax authorities and allocated to the healthcare system.
The system’s funding structure, which combines social health insurance contributions, government subsidies, and general tax revenues, helps maintain its stability and sustainability.
Employment Law in Iceland
Relevant Legislation: There are 6 pieces of legislation that govern employment law in Iceland:
- Act on Working Environment, Health, and Safety in Workplaces No. 46/1980
- Act on Working Terms and Pension Rights Insurance No. 55/1980
- Act on Trade Unions and Industrial Disputes No. 80/1938
- Act on Equal Status and Equal Rights of Women and Men No. 10/2008
- Act on Maternity/Paternity Leave and Parental Leave No. 95/2000
- Act on Foreign Nationals’ Right to Work No. 97/2002
Employment Contracts: Icelandic employment contracts should be in writing and include essential information such as duration of employment, working hours, salary, and termination notice periods.
Working Hours: The standard maximum working time in Iceland is 40 hours per week, or 8 hours per day. Overtime work is regulated, with compensation for extra hours.
Leave: Employees in Iceland are entitled to various types of leave, including paid annual leave (minimum of 24 working days per year), maternity leave, paternity leave, sick leave, and family care leave.
Overtime: In general, Icelandic law stipulates that overtime pay should be at least 1.0385 times the regular hourly wage for the first two hours of overtime work and 1.5460 times the regular hourly wage for additional hours of overtime work on weekdays. For overtime work on weekends, the overtime pay rates are typically higher.
Termination: Termination of employment in Iceland requires proper notice, which varies depending on the length of employment. Employers can terminate an employee’s contract if there is a just cause, such as poor performance, misconduct, or redundancy. Employers must provide a written explanation for the termination based on just cause. Unjustified termination can lead to claims for damages or reinstatement.
Notice: Both employers and employees must give a notice before terminating an employment contract. The notice period varies depending on the employee’s length of service. Generally, the notice period ranges from one month to three months. For employees who have worked for less than three months, the notice period is one week.
Severance Pay: Employees may be entitled to severance pay if they are terminated due to redundancy, restructuring, or other reasons that are not related to their performance or behavior. Severance pay is typically not provided in cases of termination due to misconduct, resignation, or the end of a fixed-term contract. The amount of severance pay an employee is entitled to often depends on their length of service with the employer. In Iceland, employees must have worked for a minimum of six months to qualify for severance pay, and the amount increases with the number of years of service.
Work Permits in Iceland
The immigration process in Iceland is organized and systematic, similar to most countries worldwide. Prospective immigrants usually need to apply for a specific visa or residency permit that corresponds to their reasons for relocating, such as work, education, or joining family members.
Iceland offers several types of work permits for foreign nationals who wish to work in the country. The specific type of work permit required depends on the applicant’s qualifications, the nature of the job, and the intended duration of the stay. Some of the main types of work permits in Iceland include:
- Qualified Professionals Work Permit: This permit is designed for individuals who have specialized skills or qualifications that are in high demand in Iceland. Applicants must have a valid job offer from an Icelandic employer and must meet certain educational and professional requirements.
- Temporary Work Permit: This permit is issued for short-term employment and is generally valid for up to 12 months. Temporary work permits are typically granted for seasonal work, internships, or other temporary job opportunities.
- Family Reunification Work Permit: Foreign nationals who are married to or in a registered partnership with an Icelandic citizen or a person with a permanent residence permit may be eligible for a work permit through family reunification. This permit allows the holder to work in Iceland without restrictions.
Citizens of European Economic Area (EEA) and European Free Trade Association (EFTA) countries generally do not need a work permit to work in Iceland, as they benefit from the freedom of movement within these areas. However, they are required to register with the Icelandic Directorate of Immigration if they plan to work and stay in Iceland for more than three months.
It is essential to note that obtaining a work permit does not automatically grant a residence permit. In most cases, foreign nationals who receive a work permit must also apply for a residence permit. The application process for work permits and residence permits in Iceland involves submitting the necessary documents and meeting the specific criteria set by the Icelandic Directorate of Immigration.
Iceland Public Holidays
New Year’s Day
First Day of Summer
3rd Thursday in April
First Monday in August
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Iceland Employer of Record Benefits
When you choose Agility EOR to expand in Iceland, we guarantee an Employer of Record Service tailored to the needs of your business